The ATO uses benchmarks to flag businesses that may underreport income or overclaim deductions. Falling outside the range doesn’t guarantee trouble; it increases the likelihood of scrutiny and raises suspicions that you may be operating in the shadow economy.Non-compliance costs Australia $11.2 billion annually in lost tax revenue, with $8.9 billion linked to underreported income and inflated deductions.
How Benchmarks Can Improve Your Business
Benchmarks can also facilitate smarter decision-making. Here’s how they work for you:
- Spot inefficiencies
Higher than average costs could indicate areas to sstreamiline
- Find growth opportunities
Lower costs compared to peers might suggest room for expansion
- Ensure compliance
Regularly reviewing your numbers keeps you aligned with tax obligations
- Aid business planning and strategy
Offer data to help set realistic goals, identify growth opportunities, and improve efficiencies
- Risks
Reduce audit risks and fosters fair competition
The ATO’s business performance check app makes it easy to compare your numbers by automatically calculating key ratios. This official site offers benchmarks from A to Z. If you prefer, calculate ratios manually by dividing expenses like cost of sales by turnover and comparing them with benchmark ranges.
For a more sophisticated approach, check out third-party benchmarking services. They’ll hand you detailed analyses, allowing you to factor in metrics such as employee productivity or stock turnover rates.
Industries the Benchmarks Cover
The benchmarks cover nine broad industries:
- Cost of sales to turnover: How much you spend on goods compared to your revenue
- Totals expenses to turnover
- Labour to turnover: The percentage of income spent on wages
- Rent to turnover: Your lease costs as a share of earnings
- Motor vehicle expenses to turnover: Transport costs relative to revenue
- GST-free sales to total sales
- Non-capital purchases to total sales
From these, you’ll find subcategories; for example, pubs, bakeries, and kebab shops each have unique benchmarks under food services.
This detailed approach ensures comparisons are relevant whether you’re running a café or a plumbing business.
Keep in mind that benchmarks typically do not account for unique business models or one-off expenses.
How Your Broker or Adviser Can Support You
As your broker or adviser, we can assist you with benchmarking in the following ways:
- Interpreting benchmark data in the context of your SME’s insurance needs, business strategy, risk profile, and risk appetite
- Providing guidance on risk management strategies informed by financial benchmarking
- Collaborating with accountants to ensure your SME’s financial health aligns with its insurance coverage
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